Natural Gas Conflict Ripples Beyond Russia-Ukraine Relations

(Washington, DC--January 20, 2005) The crisis over supplies of natural gas to Ukraine by Russia that erupted on New Year's Day has implications that spread well beyond the borders of these two countries and will impact both economic and political policymaking throughout Europe. That was the consensus of three briefers who addressed different aspects of the Russia-Ukraine gas conflict during a briefing yesterday at RFE/RL's Washington office.

Clifford Gaddy, a Senior Fellow at the Brookings Institution outlined what he described as Russia's "grand energy strategy," in which Ukraine is perceived as merely an obstacle frustrating Russia's energy ambitions in wealthier Western Europe and therefore a non-entity in Russia's broader strategic planning. According to Gaddy, Russia's strategic goal as regards energy is to maximize the role of its own energy resources in the world energy markets, so as to increase its geopolitical influence. To do this, it must reduce competition and maximize dependency on its own energy resources, as well as ensure a stable supply. Ukraine, Gaddy said, is a hindrance to the latter. That Russia raised Ukraine's gas prices was inevitable from an economic standpoint, Gaddy argued. By doing so, Ukraine's demand for gas would decrease, thereby freeing more supply for Europe.

Taras Kuzio, a Visiting Assistant Professor at George Washington University and recognized expert on Ukraine, rebutted Gaddy's argument, claiming that Russia's actions evidenced a complete lack of geopolitical strategy and resulted in strong denunciations by Western countries and a loss of political allies in Ukraine. According to Kuzio, Russian President Vladimir Putin's desire to have a deal signed by the January 4 European Union energy summit outweighed his hope of reinforcing opposition to Ukrainian President Viktor Yushchenko during the run-up to Ukraine's March 26 parliamentary elections. Kuzio argued that Yushchenko gained most from the agreement, both domestically and internationally. The events showed him to be a competent leader able to navigate and overcome crisis, whereas Russia came off as a bully and a threat to Europe's energy supply.

RFE/RL Coordinator of Corruption Studies Roman Kupchinsky's review of the situation did not full agree with Kuzio's assessments of Yushchenko or Ukraine. He outlined three major problems that are feeding the conflict between Russia and Ukraine over gas. The biggest, he argues, is that the state-owned Russian gas giant Gazprom holds a monopoly on natural gas sales outside of the CIS. Kupchinsky also decried Ukraine's consumption of natural gas, terming it "out of control." Corruption is also a major factor in the conflict, Kupchinsky said, although the extent to which it taints the deal struck between Russia and Ukraine remains unknown. One of the major questions concerning this agreement, according to Kupchinsky, is why Gazprom's export manager Alexander Medvedev and Putin insisted on including the little-known intermediary firm RosUkrEnergo, which under the deal will be the party actually selling gas to Ukraine. While Yushchenko has defended the company, its role in the agreed procedure for future gas sales, said Kupchinky, leads to suspicions of "a crooked scheme."